OECD publishes its Interim Economic Outlook

According to the OECD, the projected global GDP growth for 2025 is 3.2% and projected G20 headline inflation in 2025 is 3.3%, as presented in the latest Interim Economic Outlook last week by Mathias Cormann, OECD Secretary-General, and Alvaro Santos Pereira, OECD Chief Economist.

OECD key findings of September 2024 are as follows:

1.  Global growth is expected to remain resilient over the projection period at 3.2% in both 2024 and 2025, broadly in line with the average pace observed through the first half of this year. Growth was robust in the United States, the United Kingdom, Canada and Spain. In contrast, outcomes have remained soft in a few economies, including Germany, and output contracted in Argentina. Domestic demand has buoyed activity in Brazil, India, and Indonesia. However, significant risks remain, notably due to persisting geopolitical and trade tensions which could increasingly damage investment and raise import prices, due to potential deviations to the expected smooth disinflation path, and an increasing number of low-income countries at risk of debt distress.
2. Headline inflation has continued to decline in most OECD countries, partly due to further declines in food price inflation and low, or negative, energy and goods price inflation. In the G20 it is projected to fall from 6.1% in 2023, to 5.4% in 2024, and 3.3% in 2025. Core inflation in the G20 advanced economies is anticipated to ease from 4.2% in 2023 to 2.7% in 2024 and 2.1% in 2025. As a result, inflation is now at or close to target in about four-fifths of OECD economies. Nonetheless, services price inflation is still proving sticky and has abated only slowly.
3. Labour market pressures have continued to ease. The number of job vacancies has fallen steadily from peak levels observed during the pandemic. Survey measures of labour shortages have also continued to moderate in many major advanced economies. Unemployment has risen since the beginning of 2024 in the United States, Canada, Türkiye, India and South Africa. In part this reflects moderating demand, but rising labour supply has also been a key element, often reflecting stronger immigration flows.
4. Global trade is recovering faster than expected, but shipping costs remain elevated and export orders have recently moderated.

OECD recommendations for policymakers:

There is room to lower policy rates, but monetary policy should remain prudent. Central banks should use the leeway provided by moderating inflation and easing labour market to cut policy rates. The timing and scope of policy rate reductions will need to remain data-dependent and be carefully judged to ensure that underlying inflationary pressures are durably contained. In Japan, by contrast, further mild increases in policy rates are called for.

Decisive policy action is needed to reduce public debt ratios and rebuild fiscal space. Government face significant fiscal challenges from higher debt and the sizeable additional spending pressures arising from multiple sources: ageing populations, climate change mitigation and adaptation measures plans to raise defence spending, and the need to finance new reforms. Stronger near-term efforts to contain spending growth and enhance revenues are needed to ensure debt sustainability and rebuild fiscal buffers.

Governments need to revive the pace of structural reforms. Improving competition-enhancing reforms could significantly raise GDP per capita and enhance living standards over the long term. The OECD’s Product Market Regulation indicators (PMRs) measure how well countries’ regulations foster competition, both across the whole economy and in specific sectors, clearly highlighting the urgency for pro-competition reforms across both OECD member and selected non-member economies. Areas for reform include, among others, reducing barriers to entry and competition in the services sector and improving transparency and accountability in lobbying activities.

Source: https://doi.org/10.1787/1517c196-en